Speculation that Solvency II will not now be implemented 1 January 2015 or even later

Speculation that Solvency II will not now be applied to EU insurers until 1 January 2015 or even later due to recent delays and obstacles.

Extract from Lloyd’s Website:

No sooner have EU institutions agreed to postpone application of Solvency II until 1 January 2014, then further obstacles have arisen, making it likely that this revised timetable will not be met. There is speculation that Solvency II will not be applied to EU insurers until 1 January 2015 or even later.

When is Solvency II due to come into force?

The EU agreed a “quick fix” Directive on the implementation of Solvency II early in September and published it on 14 September 2012. Legally, Solvency II is therefore due to be transposed into Member States’ national legislation by 30 June 2013 and to be applied to insurance and reinsurance undertakings from 1 January 2014.    

What is causing the delay?

At their 18 September trilogue meeting, the three EU institutions (the European Commission, the European Parliament and the Council of the EU) could not reach agreement on either the terms of reference for an Impact Assessment of the Long-Term Guarantee Package (LTGP) or  whether the assessment should be completed before ( ‘ex ante’ ) or after (‘ex post’) Omnibus II is finalised. Omnibus II is necessary to align the Solvency II Directive with the EU’s Treaty and revised supervisory framework. Agreeing Omnibus II is therefore an essential next step in the EU’s legislative process. 

Other than its impact on timing, the impact assessment is of little relevance to Lloyd’s, as the LTGP is primarily aimed at investment products in the life insurance market. The impact assessment is expected to be concluded with the delivery of a final EIOPA report in March 2013. Ex ante means that there will be no further trilogue meetings before March 2013.  Omnibus II will not therefore be agreed and in place until Q2 2013 at the earliest and may well take longer to complete.

Solvency II level 2 measures will only be considered after Omnibus II is in place and the European Parliament will have up to six months to consider them. Level 3 guidelines depend on level 2. This makes the existing implementation timetable impossible, as the final Directive (Solvency II plus Omnibus II) will not be complete in time for national governments to transpose it before 30 June 2013 and the full legislative package will not be ready for compliance by EU insurers from 1 January 2014.

What happens next?

The Commission is considering the date to which implementation should be postponed. Lloyd’s would like to see early implementation of Solvency II and, if 1 January 2014 is not achievable, would prefer only 12 months’ further delay. However, given the legislative stages still to be gone through and progress needed on the impact assessment, there is considerable uncertainty over whether the EU could meet such a deadline. Lloyd’s is therefore continuing to monitor developments.

At the PRA Insurance Conference on 22 October 2012, Julian Adams, Director of Insurance, FSA, gave a speech, in which he noted the uncertainty over Solvency II timing and said that the FSA/PRA would change its approach to internal model submissions. Instead of working backwards from the official implementation date, they will agree a revised “landing slot” with firms in the IMAP process, which can be any point of the firm’s choosing up to a maximum of 31 December 2015.  

He was careful to say that “there is no magic to end-December 2015”. Nevertheless, statements in the press by senior officials at EIOPA suggest that they think that 1 January 2016 is a more realistic implementation date than 1 January 2015. Apart from all the other uncertainties in the EU legislative process, other factors should be taken into account, such as European Parliamentary elections in June 2014 and the re-appointment of European Commissioners by February 2015. Both of these could lead to periods of reduced EU legislative activity. Many insurance enterprises, including Lloyd’s, would appreciate a clear and realistic statement from the Commission of the timeline to implementation.

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